UK's Cairn Energy has won an international arbitration case against the Indian government over Rs 10,247 crore retrospective tax. With the Permanent Court of Arbitration at The Hague awarding the arbitration in favour of Cairn in a verdict that came late night on Tuesday, the Indian government has been asked to pay the British firm over Rs 7,600 crore to reverse the dividend and tax refund it had ceased and shares it sold to recover part of the tax demand.
It is to be noted that this is the second setback for India in the retrospective tax case in just three months after British telecom giant Vodafone won a similar case in a Rs 22,100-crore tax dispute in September. The international arbitration tribunal has maintained that the Cairn tax issue is not a tax dispute but a tax related investment dispute, reported Business Standard. Hence, it falls under its jurisdiction. It has ruled that India’s demand in past taxes were in breach of fair treatment under a bilateral investment protection pact.
Earlier, it was reported that the Indian government was waiting for the outcome of the Cairn Energy arbitration before deciding on appealing against losing a tax case against Vodafone Group. The government had last month told the Delhi High Court that it hasn't so far decided on appealing against the Vodafone arbitration award.
India has 90 days or till December 24 to challenge the Vodafone award before a court in Singapore - which was the seat of the arbitration.
Both Vodafone and Cairn had challenged the tax demands under bilateral investment protection treaties.
Cairn Energy, which gave the country its biggest oil discovery, received a notice from the income tax department in January 2014, requesting information related to the group reorganisation done in 2006. Alongside, the department attached the company's near 10 per cent shareholding in its erstwhile subsidiary, Cairn India.
In March 2015, the tax department sought Rs 10,247 crore in taxes on alleged capital gains made by the company in the internal reorganisation.
Cairn Energy in 2010-11 sold Cairn India to Vedanta.
Following the merger of Cairn India and Vedanta in April 2017, the UK firm's shareholding in Cairn India was replaced by a shareholding of about 5 per cent in Vedanta issued together with preference shares.
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In addition to attaching its shares in Vedanta, the tax department seized dividends totalling Rs 1,140 crore due to it from those shareholdings and set off a Rs 1,590-crore tax refund against the demand.
Cairn Energy in 2015 initiated an international arbitration to challenge retrospective taxation.
Pending final award, the tax department sold Cairn Energy's shares in Vedanta to recover part of the tax demand.